Analysis Petroleum Bill in Nigeria

In 2008 under the late President Umaru Yar’Adua, Nigeria began the arduous process of changing the institutional framework which governs the nation’s oil and gas industry. The delayed passage of the bill was followed by controversies surrounding the emergence of different versions of the document, Goodluck Jonathan, on assumption of office ordered a withdrawal of the bill to enable executive address contentious areas and ensure all stakeholders are carried along.

However, the Federal government instituted a special committee in January 2012 to fast-track the review and process of passing the bill into law. Subsequently, the revised and harmonized version of the PIB was sent to the 7th session of the national assembly on July 18, 2012. The main objective of that effort was to accelerate development of the Nigerian oil and gas industry for the benefit of all Nigerians.

The effort gave birth to what is now known as the Petroleum Industry Bill (PIB). The PIB is a product of the reform process initiated by the Federal Government of Nigeria in the oil and gas industry. PIB evolved from the work and recommendation of Oil and Gas Sector Reform Implementation Committee (OGIC) which was formed in 2000 to carry out a complete reform in the sector. Why Petroleum Industry Bill, Why do we need it?

The Petroleum Industry Bill was drafted in response to the overarching need to replace the old laws that governed the oil and gas industry for the past 50 years. The reason for the reform of Nigeria’s oil and gas is beyond illusion. * It is fundamental necessity to assure the survival of the industry for the benefit of the citizenry. * To establish the legal and regulatory framework, institutions and regulatory authorities for the Nigerian petroleum industry, to establish guidelines for the operation of the upstream and downstream sectors and for purposes connected with the same.

* The PIB will ensure that the management and allocation of oil and gas resources in Nigeria are carried out with principle of good governance, transparency, integrity and sustainable development. * To create a favorable environment for the oil and gas industry in Nigeria through infrastructural development, community development, strong environmental protection regulation and private sector growth and increase revenue. Provision of the Petroleum Industry Bill

* The 2012 PIB provides for the legal, fiscal and regulatory framework of the Nigerian oil and gas. * In order to achieve transparency, the 2012 PIB provides for the incorporation of the national oil company, a successor to the Nigerian National Petroleum Company (NNPC). This will facilitate good corporate governance, reduce bureaucratic bottlenecks and minimize political influence. * The PIB also provides for the establishment of the following agencies to the regulation of the oil and gas industry: 1. The Petroleum and Technical Bureau (PTB)

2. The Upstream Petroleum Inspectorate (UPI) 3. Downstream Petroleum Regulatory Agency (DPRA) 4. The Petroleum Technology Development Fund (PDTF) 5. The Petroleum Equalization Fund (PEF) 6. Petroleum Host Communities Fund (PHC Fund) * Another provision in the PIB is that every company that is involved in the oil and gas exploration and production is required to remit into a fund on a monthly basis, 10% of its net profit. How does the bill address transparency in governance?

Conflicting views of the Nigerian oil and gas industry has focused more on the lack of integrity and transparency. * The PIB attempts to introduce transparency in the management and operations of the industry by reducing the overbearing role and influence of government. * To achieve transparency, the 2012 PIB provides for the incorporation of the national oil company, a successor to the Nigerian National Petroleum Company (NNPC). This will facilitate good corporate governance, reduce bureaucratic bottlenecks and minimize political influence.

* Although the draft bill vests powers of co-ordination and general supervision of all institutions in the industry in the petroleum minister, it requires that the minister holds public inquiry before any regulation is made. * The draft bill requests publication of notice of the public inquiry in at least two public dailies, and this serves as a check on the powers of the minister. * To also ensure transparency the draft bill states that the president can only make discretional awards in special circumstances. Petroleum Industry Bill Recommendations

* Unbundling the NNPC: This will go in hand with the creation of a national oil company that promotes indigenous operational capacity development. In achieving their functions and objectives under this Act, the National Oil Company shall be guided by principles of the Nigerian Extractive Industries Transparency Initiative Act of 2007. * The creation of an Asset Management Company; the draft seeks to clearly delineate roles and create institutions for policy regulations , national asset management and commercial operations

* Strengthening of Regulatory and inspectorate institutions (Upstream Petroleum Inspectorate and Downstream Petroleum Regulatory Agency) that promote safety, customer rights and safe environment.

The Federal Government shall introduce and enforce integrated health, safety and environmental quality management systems with specific quality, effluent and emission targets for oil and gas related pollutants, without regard for fuel type such as gas, liquid or solid, in order to ensure compliance with international standards.

* Establishment of a gas market and gas infrastructure development.

* Establishment of a department in the ministry that is charged with frontier exploratory services.

* The creation of Petroleum Host Community Fund.

* Adoption of flexible fiscal measures that attract investment and allows for production biased taxation * A fiscal policy framework derived from a strategic national interest and incentives for attracting sustainable investment, the bill also proposes a simplified revenue collection, a progressive fiscal framework that encourages further investment.

Duties of the Agencies to be established under the PIB Petroleum Technical Bureau Some of the functions of the Bureau

The functions of the Bureau shall be, working in conjunction with other departments of the Ministry to -

(a) Provide technical and professional support to the Minister on matters relating to the petroleum industry. (b) Assist the Minister in the formulation and development of strategies to implement Government policy on the petroleum industry.

(c) Assist the Minister in monitoring the implementation of Government policy on the petroleum industry. (d) Identify opportunities and increase information about the petroleum resources base within all frontier acreages in Nigeria. (e) Develop exploration strategies and portfolio management for the exploration of unassigned frontier acreages in Nigeria. (f) Undertake studies, analyze and evaluate all unassigned frontier acreages in Nigeria. The Upstream Petroleum Inspectorate Some Functions of the Inspectorate include: (a) administer and enforce policies, laws and regulations relating to all aspects of upstream petroleum operations which are assigned to it under any law; (b) ensure and enforce compliance with the terms and conditions of all leases, licenses, permits and authorizations issued or in respect of upstream petroleum operations;

(c) set and enforce approved standards for design, procurement, construction, operation and maintenance for all plant, installations and facilities pertaining to upstream petroleum operations; (d) ensure adherence to national and applicable international environmental and other technical standards by all persons involved in upstream petroleum operations; (e) establish, monitor, regulate and enforce health and safety measures relating to all aspects of upstream petroleum operations;

(f) keep registers of all leases, licenses, permits, and other authorizations issued by the Inspectorate or granted by the Minister for upstream petroleum operations, and any renewals, amendments, extensions, suspensions and revocations thereof. (j) ensure accurate calibration and certification of equipment used for fiscal measures for upstream petroleum operations;

(h) issue licenses or permits and any other authorizations necessary for all activities connected with, but not limited to the following: (i) seismic; (ii) drilling; and (iii) design and construction of all facilities for upstream petroleum operations. Downstream Petroleum Regulatory Agency (a) administer and enforce policies, laws and regulations relating to all aspects of downstream petroleum operations as may be assigned to it by law; 33 (b) ensure and enforce compliance with the terms and conditions of all licenses, permits and authorizations issued in respect of downstream petroleum operations;

(c) set and enforce approved standards for design, procurement, construction, operation and maintenance for all plant, installations and facilities pertaining to downstream petroleum operations; (d) ensure adherence to national and applicable international environmental standards by all persons involved in downstream petroleum operations; (e) establish, monitor and regulate health and safety measures relating to all aspects of downstream petroleum operations.

(f) Keep registers of all licenses, permits, and other authorizations issued by the Agency or granted by the Minister for downstream petroleum operations, and any renewals, amendments, suspensions and revocations thereof. (g) Carry out enquiries, tests, audits or investigations and take such steps as may be necessary to monitor the activities of the holders of licenses, permits and other authorizations and to secure and enforce compliance with the terms and conditions thereof.

(h) Publish reports and statistics on the downstream petroleum sector. (I) Set cost benchmarks for downstream petroleum operations; (j) regulate bulk storage, transportation and transmission and set rules for the common carrier systems for crude oil, gas and petroleum products in downstream petroleum sector.

Petroleum Host Communities Fund (PHC Fund)

This agency under the PIB would provide fund for the community development and upkeep of the various host environments. The fund would be from companies that are involved in the oil and gas exploration and production as they required remitting into a fund on a monthly basis, 10% of its net profit. The fund is for the economic development of the oil producing areas. The Petroleum Technology Development Fund (PDTF)

The duty of this agency is to fund the development of new technologies in the petroleum industry. Objectives of the Petroleum Industry Bill The key purpose of the PIB is to achieve the transparency, boost revenue and increase the capacity of Nigerians in the oil and gas industry. The bill further seeks to foster an enabling environment for a strong oil and gas sector. Other objectives of the bill are to: (a) create a conducive business environment for petroleum operations; (b) enhance exploration and exploitation of petroleum resources in Nigeria for the benefit of the Nigerian people

(c) optimize domestic gas supplies, particularly for power generation and industrial development (d) establish a progressive fiscal framework that encourages further investment in the petroleum industry while optimizing revenues accruing to the Government; (e) establish commercially oriented and profit driven oil and gas entities; (f) deregulate and liberalize the downstream petroleum sector; (g) create efficient and effective regulatory agencies

(h) promote transparency and openness in the administration of the petroleum resources of Nigeria (i) promote the development of Nigerian content in the petroleum industry; (j) protect health, safety and the environment in the course of petroleum operations (k) attain such other objectives to promote a viable and sustainable petroleum industry in Nigeria. How realistic are these objectives in the Nigerian Context The bill, according to its sponsors, is a necessary document to explain the petroleum industry and to mark its relevance to the welfare of the people and economic development of the country. However legislators should able to recognize realism and undue optimism.

The bill states that the oil belongs to the country alone, the bill gives the federal government full control of the oil industry and this reflected in the powers given to the petroleum minister. The various agencies to be established by the bill might give the industry unnecessary bureaucracy and undesirable waste of funds. There might room for government to come ‘through the back door’ to control and disorganize the downstream sector after it has been sincerely deregulated. The Minister of Petroleum Resources is like the ‘Leviathan‘– having all executive powers on all the operations of both the upstream and downstream sectors of the industry.

There is a fear that over-regulation and dominance of government’s presence might be a disincentive to foreign and local investments. It’s quite easy to make law enactments but it’s hard following it up that is, implementing it, provision has been made to take care of the petroleum host environment, hoping it would take care of the Niger Delta problems. “Following the criticism of the initial draft bill sent by Yar’Adua, President Jonathan on assumption of office ordered a withdrawal of the draft to enable the executive address the contentious areas’. Evaluate these contentious areas. One of the contentious areas was that the bill vested too much power in the minister of petroleum resources to make regulations on all issues.

The draft bill vests the power of co-ordination and general supervision in the industry in the petroleum minister but nevertheless the minister is required to hold public inquiry on issues in at least two national dailies before he makes any regulation and this serves as a check on the minister because he has to take the decisions of the public and stakeholders into consideration before he makes a regulation. Another is that it gave discretionary award authority to the President which might hinder transparency in the industry.

The draft bill states that the president can only make discretional award in special circumstances. It also failed to adequately accommodate interest of non-oil producing states, critics expressed that the PIB is heavily in favor of the Niger Delta region while other components of the country are left out, but the PIB is totally for the well-being of the country in general. The PIB also makes provisions for the environmental protection of the Host countries and this can be seen by the creation of the Petroleum Host Communities Fund (PHC Fund)